Mark Dampier: Will Julie Dean flourish at Sanditon?

Many people have put off investing since stock markets reached their low point during the global financial crisis in March 2009. We have witnessed numerous wider economic concerns including a Greek exit from the eurozone, slowing growth in China and a Scottish referendum, to name a few. Despite this, the UK stock market, which is international in nature, has been a good source of income and capital growth.

It can be easy to overlook opportunities on our own doorstep but the UK stock market offers more diverse and exciting prospects than many investors might assume. With this in mind, I am pleased to see the imminent launch of boutique investment house Sanditon Asset Management’s TM Sanditon UK fund on 23 June.

Boutique investment groups are often formed by long-standing fund managers that have decided to strike out on their own. Some investors are reluctant to invest with new groups due to the lack of an established track record. However, our research team prefers to track the entire history of individual fund managers.

Julie Dean, who has a long history of managing UK equities dating back to 1998, will manage this new fund. At Sanditon she has been reunited with Chris Rice and Tim Russell, both of whom she previously worked with at Cazenove Capital (acquired by Schroders Investment Management in 2013). We tend to favour experienced teams, comprised of managers who are highly-incentivised by owning a significant part of the business.

Dean and her colleagues adopt an investment approach that relies on their analysis of the business cycle, examining such factors as industrial production, inventory levels and commodity prices. They then tilt their respective portfolios according to their interpretation, using more economically-sensitive stocks ahead of expansionary periods and adding to defensive areas during slowdowns. Dean used the approach to great effect at Cazenove and I believe being reunited with some of her old colleagues in a much smaller organisation will very much suit her own style.

I recently met the manager and she views the UK market as neither cheap nor expensive (or as I would call it: “no man’s land”). That said, there is a big dispersion in valuations between various stocks and sectors, meaning there is still value waiting to be uncovered.

Dean notes that an improvement in productivity has been lacking but if productivity growth picks up, we could witness a longer expansionary stage of the cycle than is normal. The fall in the oil price should also eventually have a material impact on the economy, acting as a substantial tax cut for consumers and businesses, lowering the cost of fuel, materials and transport. Household spending could also receive a further boost from falls in the unemployment rate, while Dean also expects to see stronger real wage growth going forwards.

Her portfolio will be relatively concentrated, with around 40 stock holdings expected at launch. She primarily invests in FTSE 350 companies, although around 5 per cent of the fund will invest in smaller businesses. Suggested initial holdings include Kingfisher, Babcock, Carnival and Lloyds, with no pharmaceutical, tobacco or telecoms companies – current darlings of many UK equity income funds. As such, I believe this fund would dovetail well with many of the more defensive equity income funds. Indeed, I have always believed in the benefits of maintaining exposure to several different fund managers and investment styles within a portfolio.

Dean’s pragmatic investment approach has proven a success over the long term. Launching a new fund means she is starting with a clean slate and is able to cherry-pick what she feels are the best opportunities across the UK market. Furthermore, I believe joining a new investment house will provide a more conducive environment for her stock-picking skills to flourish. This new fund could prove a worthy addition to diversify an existing UK or global portfolio.

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